Inventory Genius Method: Decreasing Expenses
Jul 20, 2023
In this part of the Inventory Genius Method series we're taking a look at decreasing expenses in your inventory based business. In my post on How Inventory Works, we talked about how decreasing expenses is one of three things you can do if you know the numbers on your profit and loss statement are accurately recorded, yet you still find a net loss when you scroll to the bottom.
As you read through these posts, remember that every story you'll read is real, and every business journey is a lesson for you as you make your way forward on the path to profitability.
You can print these posts and highlight sections you find especially important. Or, you may just decide to take notes. Be sure to write down questions as you have them and reach out to me when you are ready for the next step or to share your realization moments with me. I want to celebrate your wins and applaud your efforts as you work to become an inventory genius!
Let's dive into decreasing expenses:
Let me start by saying you cannot grow your business by cutting expenses. If you think you can bypass focusing on your margin and cut costs to fix your problems, it won’t work. Cutting your spending will only take you so far, and in some cases, you can even cut costs so much that you end up starving your business.
However, I would be leaving out an important topic if we didn’t talk about cutting expenses.
I was standing in the back room of my simple little warehouse. You remember the one. What I haven’t told you about yet are the days between celebrating the new shelves being installed in my first warehouse to the fateful day I signed another lease and moved to a real (big) deal warehouse across town.
There were a whole lot of expenses added to my profit and loss statement in those few short years between initially upgrading and losing everything.
As we began to open more franchise stores across the Upper Midwest, I did what every other entrepreneur does at some point in their journey—I added more expense. And more and more and more.
We needed a warehouse with more space. With that warehouse, we needed a fancier forklift. To bring in more product with that new forklift, we needed new shelving, and of course, we also needed more people to man all the upgrades. We needed more people to lead those people, and those people of course needed office space and desks and vacation pay. It is like the story “If You Give a Mouse a Cookie.” That was my business. One thing led to another and another and another.
Sales cover problems… For a short while anyway.
You may have found yourself in a similar situation. You may be saying, “I am growing! I am scaling. I need all these things.” And you do. However, if you don’t focus on the right things before you scale, if you don’t manage your inventory and learn to read the numbers, you will scale your problems right along with your sales.
That is what I did, until I could no longer scale my sales or my problems.
I will say that by that time in my retail journey, after almost a decade, I had finally found a good CPA and a strong financial mentor. But the damage I had done over the preceding years was almost beyond repair. Notice I said “almost.” Herein lies the issue. I was over leveraged; I was spending so much every single month simply to run the business that when franchisees decided to bail, I had no cash available to fight the mounting legal costs of defending the trademark or agreements.
My world was crashing down around me.
I knew something was brewing.
In 2015, I went to the White House and testified on Capitol Hill on behalf of small businesses. I was in Entrepreneur magazine, and I won multiple national awards. But in the pit of my stomach, I knew something was wrong. I couldn’t put my finger on it. Looking back now, I realize it was the uneasy feeling you get when cash is endlessly flowing in, yet there is nothing left to save at the end of the day. It’s when everything looks glitzy and glamorous from the outside, but behind the scenes, you are waiting for the next deposit, so you can move money from one credit card to the next, or when you cannot hold people accountable because you need the sale too badly.
It is the feeling you get from focusing on all the wrong things.
As I started to realize this, the consequences of years of mistakes were piling up, and my debt was gaining the upper hand. Add to that a mountain of legal bills and customers who never paid any of their bills (remember earlier when I said we were functioning as the bank?)
Side note: if you aren’t a bank, never act like a bank. This was one of the most detrimental mistakes I made when I decided to franchise. I bought all the inventory for all the stores, hoping and assuming our stores would eventually pay me back. When that never happened, I was screwed. I was on the hook with the vendors for thousands of dollars in inventory. It was my name on the paperwork. When I couldn’t pay, they didn’t care who owed me. They wanted their money.
Never be the bank.
I digress. So, after growing very quickly while also neglecting focusing on growing the margin and profit, I had no option but to start cutting costs.
It was painful at first. I held tightly to the fact that I absolutely had to have a team of twelve. Who would make the graphics, send the emails, create the purchase orders, and count the jeans if I didn’t have an entire team?
Did I also mention that by this time I had the coveted corner office? Yes, I scaled up to that, too. However, the stress was so intense that all I did all day was put out fires. I soon realized that I had never spent any time in that corner office anyway.
Had I really been happier in my little downtown store, standing behind the counter, talking to my customers?
I am guessing (just a wild guess) you might feel like this, too. How did I get there? I had decided I needed all those things.
Maybe you are reading this chapter saying, “But Ciara, I do need all those things.”
“I need the marketing expert.”
“I need the pop-up booth.”
“I need every app.”
“I need to go to market every quarter.”
“I need it all… Every expense. There is nothing I can cut.”
Keep telling yourself this, and very soon, if not already, you will find yourself forced to start cutting because there is no money left to spend.
This is where I found myself, my boat ceaselessly filling up with water. I started cutting. First, I cut part-time people, then travel. Then I cut a purchase over here, a service over there. Combining work duties, I found that fewer people could do more. We discovered recurring expenses we had signed up for years before and never used. We kept whittling down our expenses in a desperate attempt to find better cash flow. But cutting expense, while absolutely necessary at times and a good practice if regularly evaluated, cannot grow your business. And if you wait until you are forced to cut expenses, instead of cutting expense to keep your bottom line in a healthy position, it may be too late.
I was sensing this may be the case in my business, and I was desperate, so I kept cutting. No paycheck for me. Tearful goodbyes to team members. Closing down the warehouse and moving back to the back room of my flagship store.
This is where I found myself, standing in the back of my original little makeshift warehouse, with only a team of two others and me, empty shelves, no forklift (sold for cash), and a different kind of feeling in the pit of my stomach. This time, it was the realization that I spent so much money before because I had so much money to spend. I had scaled everything, including my expenses, just for the sake of scaling. I did it because it made me feel fancy, like a big girl. It made me feel as though I had “arrived” in the business world. I hadn’t been focusing on the right things. I had been focusing on appearances instead of the foundation of the business.
I was forced to look at the massive cracks in that foundation and try, with every ounce of my being, to patch them up before the entire building came crashing down.
It’s not exciting to say no. It’s so much easier to buy into the modern hustle mindset and tell yourself that later you will work on your genius.
That feels so right, doesn’t it?
Instead, what if product-based business owners worked on the right things with intentionality?
Understand your numbers, so you can make wise choices about growth. Focus on managing your inventory, so it is working for you, writing you a paycheck from day one.
When your profit is where you want it to be, decide what to put on your expense line, always scrolling quickly to the bottom of the profit and loss statement to make sure your profit stays steady and keeps growing.
Here is the really exciting part. When you build by focusing on the right things, not spending to look fancy, you will grow your cash, so you can live like no one else.
So, how does spending relate to your inventory genius mindset? You start to look at every expense as another way to make your inventory work for you!
Need a new employee? How will she give you freedom to buy better and build more margin?
Want to upgrade to that new point-of-sale system? How will it help you manage your inventory for more profit?
Want to travel to market? What is your plan once you get there, so you are maximizing you time looking for margin builders while building relationships that will help you scale?
It is also imperative that you set aside time every quarter to review your spending in light of your overall profit. You can master sales and even margin, but if you spend every dollar you bring in, what is the point? Your expenses can eat away at your margin dollars in a flash if you’re not watching.
As I stood on the cold concrete floor and looked at the empty space and small team, I realized I could have focused on the right things, grown my profit, used that profit to scale, and lived a much simpler life. I could have paid myself instead of paying everyone else and used my inventory to grow more margin. I vowed I would never build a business backward again. Next time, I would understand the numbers first and scale second.
If you're looking for next steps beyond these blog posts, I invite you to get started with the Quickstart to Inventory Genius.
The Quickstart to Inventory Genius is my keystone coaching roadmap. Three modules will quickly layout five things to focus on in your inventory based business. You can implement these five strategies right away in order to drive immediate profit. And with the Quickstart, I GUARANTEE that you'll double your investment through either making, saving, or finding that amount in PROFIT. The Quickstart really is the perfect way to get your inventory based business on the right track.
You may also consider joining the waitlist for my top tier mastermind program. The Profit Accelerator Mastermind is a profit strategy program that delivers amazing results for all types of inventory based business owners. It's a chance to work one on one with me and to dive into cash flow, debt management, and the profitability of your business. Interested in learning more? Join the waitlist here.
Looking for related posts?
→ Simplify Business with the Inventory Genius Method
